Refinance to Get Cash

Another reason to consider refinancing a loan is simply the potential to acquire cash. In such a situation, you basically refinance the loan for a higher amount of money. What this means is that you will owe more money than you initially began with and you may even lose a low interest rate that you had obtained previously. However, you’ll still be reducing monthly payments and freeing up more money to spend on whatever new needs or situations may have arisen or a big purchase that you're hoping to make but for which you need access to additional cash.

One way to put more money in your pocket through this approach is to tap into the equity you've built in your home and do a "cash-out" refinancing. Basically, you can refinance for an amount higher than your current principal balance and then take the extra funds as cash. This can provide money for whatever purpose you may need - remodeling a home, paying off high-interest rate bills, or even sending children to college.

One of the most common reasons for refinancing is to consolidate debts like those accrued with credit cards. When you consolidate such debts through refinancing, you substitute several monthly payments for one which is also generally lower than the combined amount of payments you were already making before.

So, after exercising such a refinance option, even if you don’t end up walking away with extra cash, you’ll see a noticeable difference in the extra money remaining from your paycheck each month. 

For more information on refinancing to get cash and the difference between this and a home equity loan, check out our Home Equity Cash Out page.